Crypto-Currency: The Next Tulip Craze?

Imagine transacting business or buying goods and services one day without using a single dollar bill or other country currency.  Imagine further that no one country or organization controls the currency and no one can create further units to dilute the value of your buying power. That’s the promise of crypto-currencies, which, since the first one was introduced in 2009, have been gaining much attention and buying.

In fact, one candidate for the greatest bull market run (uptrend) in financial history is the recent run-up in price of the Bitcoin—the crypto-currency favored by international arms dealers and drug cartels, but also gaining acceptance at some retail locations. The so-called “internet of money” is not backed by any government, which its promoters say is a good thing, because the currency is not subject to quantitative easing, better known as the over-caffeinated money printing presses in Washington, the U.K., Brussels or Tokyo. Ironically, to acquire bitcoins, you’ll have to exchange your dollars, pounds, euros or yen.

Of course, these are not actual coins; the currency exists in “wallets” that are tracked through a global system that updates everyone’s holdings; your “wallet” is on your computer, and sophisticated computers can “mine” new “coins” by solving complex algorithms that also help keep the money tracked. In the early days, there were lurid stories of peoples’ wallets getting hacked, but the crypto-processing seems to be safer now.

As recently as 2011, you could have bought any number of bitcoins for practically $0. In fact, seven years ago, a programmer spent 10,000 bitcoins to purchase two Papa John’s pizzas. Today, a single “coin” is selling for about $2,513, no doubt causing the programmer to wish that he’d held onto his coins for a few more years. But as you can see on the chart, the ride for bitcoin holders has been bumpy, and much of the price run-up has been recent. If you’ve ever experienced a market bubble, you know this is what they look like (and two inquiries about buying bitcoin at my office in the last two weeks tells me that a “correction” in the price is likely not too far off).

CA - 2017-6-8 - Crypto-Bubble

But why would the price ever drop? For one thing, the Bitcoin currency now has crypto-currency rivals, among them a similar technology and market system called Ethereum. For the first time, Bitcoins actually make up less than 50% of the crypto-marketplace. For another, costs per transaction—which are supposed to be zero—have risen to an average of $4.75, and it sometimes takes a month for the transaction to settle.

Beyond that, there’s a long-running dispute between the developers of Bitcoin who process transactions, and the “miners” who create the coins, which doesn’t look likely to be settled any time soon. It’s been speculated that Bitcoin will split into two factions, which users will have to choose between. A possible glimpse into the future happened when a new startup called Coinbase was touted as the marketplace that would finally bring Bitcoin to the mainstream. Coinbase was backed by the New York Stock Exchange. After considering its options, Coinbase decided to create a new currency alternative to Bitcoin, called Token—which will be built on Ethereum technology.

The conclusion: This is not a bandwagon you want to jump on at current prices. While prices might work their way higher in the short term, you’ll want to wait for more clarity on which ones will survive, and how governments will respond and attempt to regulate the exchanges. Our traditional currencies aren’t going anywhere anytime soon.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first. If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.

sources:

http://www.coindesk.com/price/

http://www.cnbc.com/2017/05/22/bitcoin-price-hits-fresh-record-high-above-2100.html

https://www.forbes.com/sites/laurashin/2017/06/07/bitcoin-is-at-an-all-time-high-but-is-it-about-to-self-destruct/?utm_source=TWITTER&utm_medium=social&utm_content=929485744&utm_campaign=sprinklrForbesMainTwitter#4fa5a25dcb31

The MoneyGeek thanks guest writer Bob Veres for his contribution to this post

Second Quarter 2017 YDFS Market Review

The doom and gloom crowd will have to re-up their calls for an economic and market crash until next quarter. As is their MO, “early and often” calls of demise, until they ultimately get it right, will continue. Much to their dismay, the 2nd quarter of 2017 was a good one for markets worldwide.

The U.S. stock market has more than tripled in value during the runup that started in March 2009, and the most recent quarter somehow managed to accelerate the upward trend. We have just experienced the 3rd best first half, in terms of U.S. market returns, of the 2000s.

The Wilshire 5000 Total Market Index—the broadest measure of U.S. stocks—rose 2.95% for the quarter, finishing the first half of the year up 8.73%. The comparable Russell 3000 index is up 8.93% for the year so far.

Looking at large cap stocks, the Wilshire U.S. Large Cap index gained 3.08% in the second quarter, to stand at a 9.27% gain for the first two quarters. The Russell 1000 large-cap index finished the first half of the year with a similar 9.27% gain, while the widely-quoted S&P 500 index of large company stocks gained 2.41% for the quarter and is up 8.08% in the first half of 2017.

Meanwhile, the Russell Midcap Index gained 7.99% in the first two quarters of the year.

As measured by the Wilshire U.S. Small-Cap index, investors in smaller companies posted a relatively modest 1.65% gain over the second three months of the year, to stand at a 3.95% return for 2017 so far. The comparable Russell 2000 Small-Cap Index finished the first half of the year up 4.99%, while the technology-heavy Nasdaq Composite Index broke the 6,000 barrier in April, rose 4.18% for the quarter and is up 14.14% in the first half of the year.

International investments are finally delivering returns to our portfolios. The broad-based EAFE index of companies in developed foreign economies gained 5.03% in the recent quarter, and is now up 11.83% for the first half of calendar 2017. In aggregate, European stocks have gone up 14.49% so far this year, while EAFE’s Far East Index has gained 10.45%. Emerging market stocks of less developed countries, as represented by the EAFE EM index, rose 5.47% in the second quarter, giving these very small components of most investment portfolios a remarkable 17.22% gain for the year so far.

Looking over the other investment categories, real estate, as measured by the Wilshire U.S. REIT index, gained 1.78% gain during the year’s second quarter, posting a meager 1.82% rise for the year so far. The S&P GSCI index, which measures commodities returns, lost 7.25% for the quarter and is now down 11.94% for the year, in part due to a 20.43% drop in the S&P petroleum index. Gold prices are up 7.69% for the year, and silver has gained 3.28%.

In the bond markets, longer-term Treasury rates haven’t budged, despite what you might have heard about the Fed tightening efforts. Coupon rates on 10-year Treasury bond rates have dropped a bit to stand at 2.30% a year, while 30-year government bond yields have dropped in the last three months from 3.01% to 2.83%.

By any measure, this represents a strong first half of the year, driven (as you can see by the graph) by the S&P 500 tech sector, biotech firms and information technology companies generally. What is interesting is that investors appear to be flooding into these business categories because they are the ones most likely to grow their sales even if the economic environment were to turn sour—which suggests a growing bedrock of pessimism about future economic growth among seasoned investors.

2nd Quarter 2017 Review US Stock Performance

Is that justified? Economic growth was admittedly meager in the first quarter—U.S. GDP (gross domestic product) grew just 1.4% from the beginning of January to the end of March, a figure that was actually revised upwards from initial estimates of 0.7%. That represents a slowdown from the 2.1% growth in the fourth quarter of last year, when the country was being managed by a different Presidential Administration. It might be helpful to note that the budget proposals floating around Washington, D.C. make the optimistic assumption of an economic growth rate of 3.0%. If the economy fails to achieve that rate, then watch out for a significant rise in the federal deficit. I suspect economic growth will come in closer to 2.4%

There is room for hope. The Atlanta Federal Reserve recently forecasted that the U.S. economy will grow at a 2.9% rate for the year’s third quarter. We won’t have definitive evidence of that until sometime in October, but our fingers are crossed. More good news: the unemployment rate is at a near-record low of 4.7%, and wages grew at a 2.9% rate in December, the best increase since 2009. The underemployment rate, which combines the unemployment rate with part-time workers who would like to work full-time, has fallen to 9.2%–the lowest rate since 2008.

Meanwhile, the energy sector, which was a big winner last year, has dragged down returns in 2017. This proves once again the value of diversification; just when you start to question the value of holding a certain investment, or wonder why the entire portfolio isn’t crowded into one that is outperforming, the tide turns and the rabbit becomes the hare and the hare becomes the rabbit. If only this were predictable. I like to say that the only problem with consistently accurate market timing is getting the timing right :-).

There are many uncertainties to watch in the days ahead. The U.S. Congress is still debating a health care package, and has promised to revise our corporate and individual income tax code later this year. There’s an infrastructure package somewhere on the horizon, and perhaps a round or two of tariffs on imported goods. Inflation often follows when the Fed raises rates, but we don’t know if or when the Fed will do that, or by how much.

2nd Quarter 2017 Review S&P500 Recovery

Meanwhile, the current bull market is aging, and as you can see from the accompanying chart, the runup has lasted for longer than anybody would have expected when we came out of the gloomy period after the 2008 crisis. However, bull markets don’t die of old age; they die of overexuberance, something we don’t currently have in the current market environment, as many are still quite pessimistic on the market and our economic prospects, and are therefore still on the sidelines or woefully underinvested. What I can say is that stock valuations are a bit stretched by some traditional measures, but I could have said that for the last 2-3 years. Market (over)valuation is not a very good market timing tool.

Nonetheless, we are moving ever closer to a period when stock prices will inevitably go down. That day cannot be predicted in advance, but it is always good to spend a moment and ponder how much of a downturn you would be comfortable with when markets finally turn against us. If your answer is less than 20%, or close to that figure (which is the definition of a bear market), this might be a good time to revisit your stock and bond allocations. It never hurts to take some profits off the table during the good times, to have some cash to re-deploy after a protracted downturn. On the other hand, if you’re not fearful of a downturn, then the next bear market will be a terrific buying opportunity for all of us.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first. If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so are your financial plan and investment objectives.

 

Sources:

Wilshire index data: http://www.wilshire.com/Indexes/calculator/

Russell index data: http://www.ftse.com/products/indices/russell-us

S&P index data: http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf–p-us-l–

Nasdaq index data:

http://quotes.morningstar.com/indexquote/quote.html?t=COMP

http://www.nasdaq.com/markets/indices/nasdaq-total-returns.aspx

International indices: https://www.msci.com/end-of-day-data-search

Commodities index data: http://us.spindices.com/index-family/commodities/sp-gsci

Treasury market rates: http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/

Bond rates:

http://www.bloomberg.com/markets/rates-bonds/corporate-bonds/

General:

https://www.ft.com/content/cb5b1156-5d9e-11e7-b553-e2df1b0c3220

https://wdef.com/2017/06/29/economy-grew-1-4-in-first-quarter-higher-than-previous-estimates/

http://money.cnn.com/2017/01/06/news/economy/december-jobs-report-2016/index.html?iid=EL

The MoneyGeek thanks guest writer Bob Veres for his contribution to this post

 

 

Why Short-term Investment Performance Doesn’t Matter

The phone rings from a prospect looking for a new advisor and, after exchanging a bit of information on how financial planning and investment planning are long term endeavors that go hand in hand, the prospect inevitably asks about performance. Do we beat the S&P 500 index? What kind of returns can he expect as a client? What have been my historical rates of return? How often will I report on portfolio performance?

After explaining that every client is unique, and past performance has no bearing on the future, the prospect persists in pursuing performance information. I then emphasize the perils of a focus on short-term performance, the superior benefits of a focus on goals & dreams, risk tolerance, asset allocation and time frame.  Mostly I then get a thank you and don’t hear from the prospect ever again.

If you’re a client of a financial planner, you probably receive portfolio reports every three months—a form of transparency that financial planning professionals introduced at a time when the typical brokerage statement was impossible to decipher. But it might surprise you to know that most professionals think there is actually little value to any quarterly reporting or performance information, other than to reassure you that you actually do own a diversified portfolio of investments. It’s very difficult to know if you’re staying abreast of the market, and for most of us, that’s not really relevant anyway.

Why?

The only way to know if your investments are “beating the market” is to compare their performance to “the market,” which is not easy. You can compare your return to the Dow Jones Industrial Average, but that index represents only 30 stocks, all of them large companies. Most people’s investment portfolios include a much larger variety of assets: U.S. stocks and bonds, foreign stocks and bonds, both including stocks of large companies (large cap), companies that are medium-sized (midcap) and smaller firms (small cap). There may be stocks from companies in emerging market countries like Sri Lanka and Mexico. There may be real estate investments in the form of REITs and investment exposure to shifting commodities prices, like wheat, gold, oil and live cattle.

In order to know for sure that your particular batch of investments out-performed or under-performed “the market,” you would need to assemble a “benchmark” portfolio made up of index funds in each of these asset categories, in the exact mix that is in your own portfolio. Even if you could do that precisely, daily, weekly and monthly, market movements would distort the original portfolio mix by causing some of your investments to gain value (and become larger pieces of the overall mix) and others to lose value (and become smaller pieces), and those movements could be different from the movements inside the benchmark. After a month, your portfolio would be less comparable to the benchmark you so painstakingly created and would be rendered virtually useless.

Many professionals believe that there are several keys to evaluating portfolio performance in a meaningful way—and the approach is very different from comparing your returns with the Dow’s.

1) Take a long view: What your investments did last month or last quarter is purely the result of random movements in the market, what professionals call “white noise.” But you might be surprised to know that even one-year returns fall into the “white noise” category. It’s better to look at your performance over five years or more; better still to evaluate through a full market cycle, from, say, the start of a bull (up-trending) market, through a bear (down-trending) market, and to the start of a new bull market. However, you should remember that there are no clear markers on the roadside that say: “This line marks the start of a new bull market.”

2) Compare your performance to your goals, not to your friends’ portfolio: Let’s suppose that our financial plan indicated that your investments needed to generate 5% returns above the rate of inflation in order for you to have a great chance of affording a long, comfortable retirement. If that’s your goal, then chances are, your portfolio is not designed to beat the market; it represents a best guess as to which investments have the best chance of achieving that target return, through all the inevitable market ups and downs between now and your retirement date. If your returns are negative over three to five years, that means you’re probably falling behind on your goals—and you might be taking too much risk in your portfolio.

3) Recognize that some of your investments will go down, even in strong bull markets:  The concept of diversification means that some of your holdings will inevitably move in opposite directions, return-wise, from others (believe it or not, this is a good thing!). If all of your investments are going up in a strong market, chances are they will all be going down in a weak one. Ideally, the overall trend will be upward—the investments are participating in the growth of the global economy, but not all at the same rate and with a variety of setbacks along the way. If you see some negative returns, understand that those are the investments you’re counting on to give you positive returns if/when other parts of your investment mix are suddenly, probably unexpectedly, turning downward.

A focus on under-performing funds or stocks in the short-term can cause you to make short-term detrimental moves with your portfolio. If the underlying fundamentals of the stock or fund are intact, just perhaps out-of-favor in the short term (1-3 years), you shouldn’t tinker with them (assuming your reason for buying hasn’t changed). Treat your portfolio as a combination of ingredients that individually come together to make a tasty treat. Removing or focusing on one or more individual ingredients (say because it’s too salty or sour) can turn a tasty treat into a bland dish.

Too often I see clients focus on individual funds or sectors that are under-performing in the short term, and they want to sell them at what may turn out to be the bottom.  This is one reason why numerous Dalbar studies of individual investor behavior show that most of them under-perform even the funds they own (let alone the markets overall).  I try to explain that markets, industries and sectors are cyclical. They come in and out of favor as large portfolio managers make decisions based on their perception of the stage of the economic cycle. You shouldn’t try and emulate them.

That doesn’t mean you shouldn’t look at your portfolio statement when it comes out. Make sure the investments listed are what you expected them to be, and let your eye drift toward the longer time periods. Notice which investments rose the most and which were down and you’ll have an indication of the overall economic climate. And if your overall portfolio beat the Dow this quarter, or over longer periods of time, well, that probably only represents “white noise” …

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first. If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch.

The MoneyGeek thanks guest writer Bob Veres for his contribution to this post.

What’s the Government Buying with your Money?

Tax time is over for another year for millions of Americans (who didn’t ask for an extension), and as you look over your tax payments for calendar 2016, you’re undoubtedly wondering where those dollars are being spent by Uncle Sam.

The Wall Street Journal recently published a chart which breaks down spending for every $100 of tax receipts—and concludes that the U.S. government is actually a very large insurance company, that also happens to have an army. Chances are, the check or checks that you wrote for the year barely keep the government running for a fraction of a second.

For every $100 you pay in taxes, $23.61 goes to Social Security payments and administration—basically old age insurance for retirees.  Another $15.26 goes to Medicare, the government health insurance program.  Medicaid, the health insurance program for the poor, accounts for another $9.55 of that $100 tax bill—bringing the total costs for various civilian insurance programs to 48% of the total budget.  And that army?  It costs $15.24 of every $100 the government collects in taxes, not counting veterans benefits.

In all, the 2016 federal budget fell $15.24 out of every $100 short of revenues equaling expenses.  Where would you cut?

Things like federal expenditures and grants for education ($2.08), food stamps ($1.89), affordable housing ($1.27) and foreign aid ($1.14) actually make up a very small part of the budget, smaller than interest payments on the national debt ($6.25).

There has been talk about helping reduce the budget by lowering expenditures on the National Endowments for the Arts and Humanities, which together represent eight tenths of one cent of that $100 tax bill.  This would be comparable to someone trying to pay off his mortgage by looking for coins under the sofa cushions.

As for us, we’re just glad that we survived another very busy tax season, with more compliance requirements imposed on preparers and taxpayers than ever before. Tax simplification? Doesn’t seem to ever be in the cards.

If you would like to review your current investment portfolio or discuss any other tax or financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.

Source:

https://www.wsj.com/articles/how-100-of-your-taxes-are-spent-8-cents-on-national-parks-and-15-on-medicare-1492175921

The MoneyGeek thanks guest writer Bob Veres for his contribution to this post

First Quarter 2017 YDFS Market Review

Are we in the early stages of a bear market given that we’ve had over eight years of an up-trending market that may be growing tired? Or are we in the late stages of a bull market—that time when the market suddenly takes off like a rocket for no apparent reason?

Over the last eight years, the S&P 500 stock market index has returned more than 300%. But the tail end of this run (if indeed it’s the tail end) seems to have accelerated the trend.  The first quarter of 2017 provided the highest returns for U.S. large-cap stocks since the last three months of 2013.  The NASDAQ index has booked its 21st record close of the year so far, and the indices have recorded a 30% rise over the past six quarters, marking the fastest advance since 2006.

The first quarter of 2017 has seen the Wilshire 5000 Total Market Index—the broadest measure of U.S. stocks—rise 5.72%, while the comparable Russell 3000 index gained 5.91% in the first quarter.

Looking at large cap stocks, the Wilshire U.S. Large Cap index gained 6.01% in the first quarter.  The Russell 1000 large-cap index finished the first quarter with a 6.23% performance, while the widely-quoted S&P 500 index of large company stocks was up 5.53% in the first three months of 2017.

Meanwhile, the Russell Midcap Index gained 5.15% in the first quarter.

As measured by the Wilshire U.S. Small-Cap index, investors in smaller companies posted a relatively modest 2.26% gain over the first three months of the year.  The comparable Russell 2000 Small-Cap Index finished the quarter up 2.20%, while the technology-heavy NASDAQ Composite Index rose 9.83% in the first quarter, continuing its record-breaking climb.

Even the international investments were finally soaring through the start of the year.  The broad-based EAFE index of companies in developed foreign economies gained 6.47% in the first three months of calendar 2017.  In aggregate, European stocks gained 6.74% for the quarter, while EAFE’s Far East Index gained 5.13%.  Emerging market stocks of less developed countries, as represented by the EAFE EM index, rose 11.14%.

Looking over the other investment categories, real estate investments, as measured by the Wilshire U.S. REIT index, eked out a 0.03% gain during the year’s first quarter.  The S&P GSCI index, which measures commodities returns, lost 2.51%, in part due to a 5.81% drop in the S&P crude oil index.  Gold prices shot up 8.64% for the quarter and silver gained 14.18%.

In the bond markets, rates are incrementally rising from practically zero to not much more than zero. Coupon rates on 10-year Treasury bonds now stand at 2.39% a year (otherwise known as the risk-free rate), while 30-year government bond yields have risen to 3.01%.

The pundits on Wall Street have been telling us that the market’s sudden meteoric rise—which really accelerated starting in December of last year—is the result of the so-called “Trump Trade,” shorthand for an expectation that companies and individuals will soon be paying fewer taxes and be burdened by fewer regulations, leading to higher profits and greater overall prosperity.  Add in a trillion dollars of promised infrastructure spending, and the expectation was an economic boom across virtually all sectors.

However, there is, as yet, no sign of that boom; just a continuation of the slow, steady recovery that the U.S. has experienced since 2009.  The latest reports show that the U.S. gross domestic product—a broad measure of economic activity—grew just 1.6% last year, the most sluggish performance since 2011.  The U.S. trade deficit widened in January, and both consumer spending and construction activities are weakening from slower-than-average growth rates.

The good news is that corporate profits increased at an annual rate of 2.3% in the fourth quarter, which shows at least incremental improvement.  However, the previous three months saw a 6.7% rise in profits, suggesting that the trend may be downward going forward. Expectations for the first quarter of 2017 earnings are even higher, which would help stretched valuations in many stocks and in the overall market.

It’s possible to read too much into the recent failure of health care legislation, and imagine that we’re in for four years of ineffective leadership.  There will almost certainly be a tax reform debate in Congress in the coming months, but the surprising aspect—as with the healthcare legislation—is that there seems to have been no prepared plan for Congress to vote on.  We know that the Republican President and Congress want to lower corporate tax rates and simplify the tax code—which, in the past, has meant adding thousands of new pages to it.  We know that there is general opposition to any form of estate taxes, but nobody is proposing which deductions would be eliminated in order to make this package revenue-neutral. I have no illusions that tax reform will ultimately amount to any measure of tax simplification (cue the collective sigh from overworked tax preparers).

Similarly, there have been no details about the infrastructure package, which means we don’t know yet whether it would be a budget-busting package of pork barrel projects or a real contribution to America’s global competitiveness.

We can, however, be certain of one thing: as the bull market ages, we are moving ever closer to a period when stock prices will go down, perhaps as dramatically as 20%, which would qualify as a bear market, perhaps more or less.  While bull markets don’t die of old age alone, this is still a good time to ask yourself: how much of a downturn would I be able to stomach either before panic sets in or my lifestyle is endangered?  If your answer is less than 20%, or close to that figure, this might be a good time to revisit your stock and bond allocations. It’s never too soon to trim profits on some positions to lighten exposure and take advantage of any coming sell-off.

On the other hand, if you’re not fearful of a downturn, then you should look at the next bear market the way the most successful investors do, and envision a terrific buying opportunity, a time when stocks go on sale for the first time in the better part of a decade.  For some reason, people go to the shopping mall to buy when items go on sale, and do the opposite when the investment markets go down.  Knowing this can be an unfair advantage to your future wealth, and even make you look forward to the end of this long, unusually steady, increasingly frantic bull run in stocks.  After all, if history is any indication, the next downturn will be followed by another bull run.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.

Sources:

Wilshire index data: http://www.wilshire.com/Indexes/calculator/

Russell index data: http://www.russell.com/indexes/data/daily_total_returns_us.asp

S&P index data: http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf–p-us-l–

Nasdaq index data:

http://quotes.morningstar.com/indexquote/quote.html?t=COMP

http://www.nasdaq.com/markets/indices/nasdaq-total-returns.aspx

International indices: https://www.msci.com/end-of-day-data-search

Commodities index data: http://us.spindices.com/index-family/commodities/sp-gsci

Treasury market rates: http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/

Bond rates:

http://www.bloomberg.com/markets/rates-bonds/corporate-bonds/

General:

http://www.marketwatch.com/story/debate-about-path-for-stock-market-rages-as-dow-rallies-4440-points-in-year-and-a-half-2017-03-31?siteid=yhoof2&yptr=yahoo

http://www.marketwatch.com/story/how-investors-can-learn-to-stop-worrying-and-love-a-stock-market-correction-2017-03-30

http://www.reuters.com/article/us-usa-economy-gdp-idUSKBN1711MX?feedType=RSS&feedName=domesticNews

The MoneyGeek thanks guest writer Bob Veres for his contribution to this post

Higher short-term rates: What to Do

The U.S. Federal Reserve Board’s Open Market Committee just raised the short term Federal Funds rate from 0.75% to 1.00%—the second rate hike in three months.  The short term federal funds rate is what banks are charged for overnight borrowing and affects all manner of loans and credit cards. So what should you do with your investment portfolio in light of this change?

Nothing.

Why?  First of all, the rate change was laughably minor, considering all the press coverage it received.  In the mid-2000s, Fed Chairman Alan Greenspan raised interest rates 17 times in quarter-point jumps, finally taking Fed Funds to a 5% rate.  This time around, the economists at America’s central bank are behaving extremely cautiously.

Second, you may read that any raise in interest rates is depressing for stocks.  It’s true that borrowing will be incrementally more expensive for American corporations than they were last week.  But bigger picture, this move was actually a validation of the country’s economic progress in our long slow climb out of The Great Recession.

By raising rates, the Fed was indicating that it believes the companies that make up our economy are healthy enough to survive and prosper under slightly higher interest rates.  The markets apparently felt like this was a positive sign, that the economy no longer needs to be nursed back to health.  The widely-followed S&P 500 stock index rose a full percentage point on the news the day of announcement.

Third, and more good news, the Fed has now moved into a mode where it is fighting inflation, rather than trying desperately to stimulate it.  The worst thing that could happen to the economy is a bout of deflation, where prices fall and there are no policy remedies to fix the problem.  In the discussion accompanying the rate rise (the infamous Fed “minutes”) the Board of Governors expressed concern that inflation might rise above their “target” of 2%, hence the tightening.  If you read the message between the lines, they seem to feel that the threat of deflation is over.

Finally, the rate hike was expected, and already built into the price of stocks.  And more still are expected: at least two and possibly three 0.25% rises before the end of the year.  But the Fed also signaled that if there is any sign of economic backtracking, those plans will be scrapped.  The rate rises are anything but reckless. But given the strength in the unemployment rate, the jobs numbers and wage increases, I believe that at least two more rate increases are in store before the end of the year.

So what WILL be the effect of the rate hike?  Borrowing to buy a car or a house will be slightly more expensive going forward than it was last week.  The average thirty year fixed mortgage rate this time last year was 3.68%; it’s now up to 4.21%.

Most credit cards charge variable rates of interest, which likely means a 0.25 percent rise in the rates you pay on any balances you carry from month to month.

And private student loans with variable interest rates will likely increase each time the Fed raises rates.  Balances on Stafford, Graduate Plus or Parent Plus loans will remain at their current interest rates, but the rates on new loans will probably rise.

If your portfolio is well-diversified, there’s not much more you can do to ride out a (slowly) rising-rate environment.  Ignore the headlines and celebrate the fact that even the most cautious economists in Washington are finally admitting that the economy is on solid ground.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.

Sources:  

https://www.theguardian.com/business/2017/mar/15/us-federal-reserve-raises-interest-rates-to-1

http://www.chicagotribune.com/business/ct-fed-interest-rate-impact-0316-biz-20170315-story.html

https://www.ft.com/content/9ea0e1bd-8c45-31ff-9d7c-241023fd5e12

https://www.nerdwallet.com/blog/investing/fed-rate-hike-4-ways-to-ride-rising-interest-rate-wave/#.WMmTRplBq6o.twitter

The MoneyGeek thanks guest writer Bob Veres for his contribution to this post

Are Millennials Risk Averse Savers?

The Millennials are the generation of kids born between the years 1981 and 1997. This year, Millennials will overtake the baby boomers as largest generation in United States history with 75.3 million people.

Millennial Americans are saving their money at a higher rate than their Baby Boomer counterparts at a similar age.  Research from the Transamerica Center for Retirement Studies shows that nearly three-quarters of Millennials are saving for retirement at an earlier age than past generations.  Half are putting away 6% of their income or more—a statistic that makes Millennials the best cohort of savers since the Great Depression, despite having to carry record high levels of student loan debt.  Those who participate in their workplace retirement plans are saving 7% a year, on average.

Alas, Millennials are not doing an equally good job of investing.  The research suggests that many younger Americans are frightened and confused by the topic of investing, and keep their money in their bank accounts.  That’s a problem, since low interest rates essentially drop the return on investment to 0% a year.  In the Transamerica survey, 25% of Millennial respondents said they weren’t sure how their retirement savings were invested, and, when they were promoted to check, they reported higher allocations to bonds, money market funds and other low-return investments than their Baby Boomer or Generation X counterparts.

There are a variety of prescriptions for the problem of being under-invested, which is much more easily fixed than bad savings habits.  Millennials need to be educated about investing—a subject which is not taught in high school or college.  They need to become more comfortable with risk, understanding that, although markets do go down from time to time, they have always recovered and beaten their previous highs. There is no shortage of web sites, blogs, books and podcasts available for them to take advantage of to educate themselves at little or no costs. A fee-only financial planner who is a fiduciary can be an invaluable resource to millennials who are skeptical or scared of investing.

If you are a millennial (or even if you aren’t one), and would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.

Sources:

http://www.forbes.com/sites/arielleoshea/2017/02/21/5-essential-investing-moves-for-millennials/?ss=personalfinance#743c36582ab5

http://www.csmonitor.com/Business/Saving-Money/2017/0221/Why-Millennials-are-better-with-their-money-than-their-parents

The MoneyGeek thanks guest writer Bob Veres for his contribution to this post.